SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K / A#2
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
APRIL 17, 2001
Date of Report (date of Earliest Event Reported)
I-LINK INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
FLORIDA 0-17973 59-2291344
(State or Other Jurisdiction of (Commission File No.) (I.R.S. Employer
Incorporation or Organization) Identification No.)
13571 SOUTH WADSWORTH PARK DRIVE, SUITE 200, DRAPER, UTAH 84020
(Address of principal executive offices and zip code)
(801) 576-5000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed from last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 2, 2001, Registrant filed a Current Report on form 8-K to announce the
acquisition of WebToTel, Inc., a Delaware corporation. This amendment to
Registrant's Current Report on Form 8-K is being filed to include the Financial
Statements and Pro Forma Financial Information required by Item 7 of Form
8-K. This Form 8K/A#2 amends I-Link's Form 8K/A#1 filed on June 29, 2001.
Specifically, the Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 2000 has been amended as more
fully disclosed in Note 4 on Page F-20 herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statement of the Business Acquired.
See Index to Financial Statements and Pro Forma Financial Information on Page
F-1 of this Report
(b) Pro Forma Financial Information.
See Index to Financial Statements and Pro Forma Financial Information on Page
F-1 of this Report
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the duly
authorized undersigned.
Date: July 27, 2001 I-Link Incorporated
/s/ James A. Giauque
---------------------------
James A. Giauque
Chief Accounting Officer
I-LINK INCORPORATED
INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL
INFORMATION
NEXBELL COMMUNICATIONS INC. PAGE
----
Report of Independent Accountants F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Stockholders' Equity (Deficit) F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Unaudited Pro Forma Combined Condensed Financial Statements F-16
Unaudited Pro Forma Combined Condensed Balance Sheet F-17
Unaudited Pro Forma Combined Condensed Statement of Operations F-18
Notes to Unaudited Pro Forma Combined Condensed Financial Statements F-19
NEXBELL COMMUNICATIONS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2000
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Nexbell Communications, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Nexbell Communications, Inc.
at December 31, 2000, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
June 15, 2001
Salt Lake City, Utah
F-1
NEXBELL COMMUNICATIONS, INC.
BALANCE SHEET
December 31,
2000
ASSETS
Current assets:
Cash and cash equivalents $ 366,855
Accounts receivable, net of allowance for doubtful accounts of $161,858 330,093
Prepaid expenses and other current assets 78,063
-----------
Total current assets 775,011
Property and equipment, net 667,592
Deferred costs 36,656
Other non-current assets 47,331
-----------
Total assets $ 1,526,590
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 450,047
Accrued liabilities 250,982
Deferred revenue 379,149
Lease incentive 255,288
Capital lease obligations, current 185,140
-----------
Total current liabilities 1,520,606
Deposits 210,807
Notes payable 6,119,504
Capital lease obligations, non-current 109,910
-----------
Total liabilities 7,960,827
-----------
Commitments (Note 5)
Stockholders' deficit:
Preferred stock: $0.001 par value; 20,000,000 shares
authorized; 0 shares issued and outstanding --
Common stock: $0.001 par value; 30,000,000 shares of
Class A and 10,000,000 Class B common stock authorized;
20,246,000 shares of Class A issued and outstanding 20,246
Additional paid-in capital 1,174,854
Notes receivable from stockholders (30,000)
Accumulated deficit (7,599,337)
-----------
Total stockholders' deficit (6,434,237)
-----------
Total liabilities and stockholders' deficit $ 1,526,590
===========
The accompanying notes are an integral part of these financial statements.
F-2
NEXBELL COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31,
2000
REVENUES:
Telecommunication services $ 1,455,456
-----------
Total revenues 1,455,456
OPERATING COSTS AND EXPENSES:
Telecommunication network expense 4,048,943
Selling, general and administrative 2,788,040
Provision for doubtful accounts 164,921
Depreciation and amortization 265,257
-----------
Total operating costs and expenses 7,267,161
OPERATING LOSS (5,811,705)
OTHER INCOME (EXPENSE):
Interest expense 256,878
Interest and other income (21,457)
Other expense 139,606
-----------
Total other expense 375,027
Net loss $(6,186,732)
===========
The accompanying notes are an integral part of these financial statements.
F-3
NEXBELL COMMUNICATIONS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 2000
Notes from
Additional Receivable Total
Members' Common Stock Paid-In Members and Accumulated Stockholders'
Capital Shares Amount Capital Stockholders Deficit Deficit
Balance at January 1, 2000 $ 1,051,100 -- $ -- $ -- $(424,000) $(1,412,605) $ (785,505)
Payment on notes receivable
from members -- -- -- -- 424,000 -- 424,000
Issuance of notes receivable
from stockholders -- -- -- -- (30,000) -- (30,000)
Issuance of common stock upon
recapitalization (1,051,100) 20,102,000 20,102 1,030,998 -- -- --
Exercise of common stock options -- 144,000 144 29,856 -- -- 30,000
Stock compensation expense -- -- -- 114,000 -- -- 114,000
Net loss -- -- -- -- -- (6,186,732) (6,186,732)
----------- ----------- ------- ---------- --------- ----------- -----------
Balance at December 31, 2000 $ -- 20,246,000 $20,246 $1,174,854 $ (30,000) $(7,599,337) $(6,434,237)
=========== =========== ======= ========== ========= =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
NEXBELL COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,186,732)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts 164,922
Loss on disposal of assets 103,897
Depreciation and amortization 265,257
Amortization of lease incentive (382,932)
Stock compensation expense 114,000
Increase (decrease) from changes in operating assets and liabilities:
Accounts receivable (460,558)
Prepaid expenses and other current assets 2,844
Accounts payable (93,996)
Accrued liabilities 258,653
Deferred revenue 352,630
Deposits 191,666
-----------
Net cash used in operating activities (5,670,349)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (410,767)
-----------
Net cash used in investing activities (410,767)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes receivable 148,686
Payments on notes receivable from members 424,000
Proceeds from notes payable 5,866,098
-----------
Net cash provided by financing activities 6,438,784
-----------
Net increase in cash and cash equivalents 357,668
Cash and cash equivalents at beginning of year 9,187
-----------
Cash and cash equivalents at end of year $ 366,855
===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ --
===========
Cash paid for interest $ --
===========
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITY:
Property and equipment acquired under capital leases $ 295,050
===========
Common stock acquired through issuance of notes receivable $ 30,000
===========
The accompanying notes are an integral part of these financial statements.
F-5
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Nexbell Communications, Inc. (the "Company") is a wholesale network
telecommunications provider, enabling the Company's customers to provide
Voice over Internet Protocol ("VoIP") solutions to their customers.
The Company was formed and registered in the State of Ohio as Intelligent
Communications LLC in May 1999. Effective March 31, 2000, the assets and
liabilities of the Company were transferred to Nexbell Communications,
Inc., a Delaware C-Corporation owned by the members of Intelligent
Communications LLC, in a transaction accounted for at historical cost as a
reorganization of entities under common control.
The Company incurred a net loss of $6,186,732 for the year ended December
31, 2000 and as of December 31, 2000 had an accumulated deficit of
$7,599,337 and negative working capital of $745,595. The Company
anticipates that revenues generated from its operations will not be
sufficient during 2001 to fund ongoing operations, product development and
anticipated growth in its subscriber base.
The Company entered into an acquisition agreement with WebToTel, Inc.,
("WebToTel") on February 22, 2001 (a subsidiary of Counsel Communications,
LLC) and WebToTel was subsequently acquired by I-Link Corporation on April
17, 2001 (see Note 9). As a result of Counsel Communications, LLC
("Counsel") being the majority stockholder of WebToTel and I-Link
Corporation, Counsel has committed to fund, through long-term inter-company
advances or equity contributions, all capital investments, working capital
or other operational cash requirements of the companies through April 15,
2002.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenues as services are provided to the customer.
Payment is received on a monthly basis for the following month's services.
This revenue is deferred until service has been provided.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
Company deposits cash and cash equivalents with high credit quality
financial institutions located in Ohio. At times, such amounts may exceed
the F.D.I.C. limits. The Company limits the amount of credit exposure with
any one financial institution and believes that no significant
concentration of credit risk exists with respect to cash investments.
F-6
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents and accounts
receivable. The Company's accounts receivable are derived from revenue
earned from customers located in the U.S. The Company maintains an
allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.
For the year ended December 31, 2000, two customers accounted for 26.6% and
21.5% of net revenues, respectively. Additionally, at December 31, 2000,
these customers accounted for 11.3% and 3.1% of net accounts receivable,
respectively.
The Company relies primarily on one supplier for network services. The loss
of this supplier could be detrimental to the Company's operations if there
was a significant delay in finding a replacement supplier.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the lesser of the asset life or lease term
(if applicable). The following are the estimated useful lives of the
assets:
Furniture and fixtures 7 years
Office and computer equipment 7 years
Leasehold improvements 3 years
Computer software 3 years
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires recognition of
impairment of long-lived assets in the event the net book value of such
assets exceeds the future undiscounted cash flows attributable to such
assets. Through December 31, 2000, the Company had recorded no impairment
of long-lived assets.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies
with the disclosure provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123").
SOFTWARE DEVELOPMENT COSTS
Costs related to the development of internal use software are capitalized
in accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". Capitalized
software is amortized on a straight-line basis over 3 years.
F-7
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
INCOME TAXES
The Company records deferred taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
("SFAS No. 109"). SFAS 109 requires recognition of deferred tax assets and
liabilities for temporary differences between the tax bases of assets and
liabilities and the amounts at which they are carried in the financial
statements, based upon the enacted tax rates in effect for the year in
which the differences are expected to reverse. A valuation allowance is
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"). SFAS 133 establishes new
standards of accounting and reporting for derivative instruments and
hedging activities. SFAS 133 requires that all derivatives be recognized at
fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of
operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. The Company will adopt SFAS 133 in the
first quarter of 2001. The Company does not currently hold derivative
instruments or engage in hedging activities. Accordingly, the adoption of
SFAS 133 is not expected to have a material effect on the Company's
financial position or results of operations.
2. BALANCE SHEET COMPONENTS
PROPERTY AND EQUIPMENT DECEMBER 31, 2000
Computer equipment under capital leases $ 295,050
Computer equipment and software 285,574
Telecommunications network equipment 87,540
Leasehold improvements 86,474
Furniture and fixtures 63,429
---------
818,067
Less: Accumulated depreciation (150,475)
---------
$ 667,592
=========
Accumulated depreciation of computer equipment under capital leases totaled
$34,419 at December 31, 2000.
F-8
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
DECEMBER 31,
2000
DEFERRED COSTS
Installation costs $ 207,719
Less: Accumulated amortization (171,063)
---------
$ 36,656
=========
Capitalized costs related to the network service provider installation are
being amortized on a straight-line basis over the three year life of the
service contract.
DECEMBER 31,
2000
ACCRUED LIABILITIES:
Payroll and related expenses $116,028
Service fees and installation costs 58,574
Service provider expenses 55,093
Other 21,287
--------
$250,982
========
F-9
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
3. INCOME TAXES
The Company recognized no income tax benefit from its net loss for the year
ended December 31, 2000.
Deferred tax assets and liabilities consist of the following:
DECEMBER 31,
2000
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 2,753,000
Accruals and reserves 79,000
-----------
2,832,000
===========
Net deferred tax asset 2,832,000
Valuation allowance (2,832,000)
-----------
$ --
===========
Management believes that, based on a number of factors, it is more likely
than not that the net deferred tax asset will not be utilized. Therefore, a
full valuation allowance has been recorded at December 31, 2000.
At December 31, 2000, the Company had approximately $7,379,500 of federal
and state net operating loss carryforwards available to offset future
taxable income which expire in varying amounts beginning in 2020. Under the
Tax Reform Internal Revenue Code regulations, the amounts of and benefits
from net operating loss carryforwards may be limited in certain
circumstances. Events which cause limitations in the amount of net
operating losses that the Company may utilize in any one year include, but
are not limited to, a cumulative ownership change of more than 50%, as
defined, over a three year period.
F-10
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
4. BORROWINGS
NOTE PAYABLE
The Company has a note payable to Counsel, a related party (see Note 9).
Effective July 2000, Counsel managed certain aspects of the Company's
business based on a preliminary acquisition agreement. The note is
collateralized by accounts receivable and intangible assets. The Revolving
Loan Agreement ("Agreement") allows Counsel to make periodic loans to the
Company capped at an aggregate principal amount of $10,000,000. All
principal and interest outstanding incurs interest that is compounded
quarterly at a rate of 10 percent per annum. No interest has been paid on
the note as of December 31, 2000. The Agreement terminates upon the earlier
of:
1) The closing of the equity financing in respect of the asset purchase
transaction between PT-1 Communications, Inc. and Counsel,
2) or April 5, 2002.
As of December 31, 2000, the PT-1 equity financing had not occurred. The
loan balance as of December 31, 2000 is $6,119,504, which includes accrued
interest of $253,406.
Under the Agreement, the Company is not required to maintain specific
financial covenants.
5. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through 2004. Upon
inception, the Company received a lease incentive payment of $875,000 under
a certain equipment lease, which is being amortized over the term of the
related lease as a reduction of rental expense. Total rent expense for the
year ended December 31, 2000 was $1,847,723, net of $382,932 of lease
incentive amortization. The Company recognizes rent expense as it is paid.
F-11
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
Future minimum lease payments under noncancelable operating and capital
leases at December 31, 2000 are as follows:
YEAR ENDED CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
2001 $ 235,025 $2,761,570
2002 117,513 1,127,438
2003 -- 419,734
--------- ----------
Total minimum lease payments 352,538 $4,308,742
==========
Less: Amount representing interest (57,488)
---------
Present value of capital lease obligations 295,050
Less: current portion (185,140)
---------
Long-term portion of capital lease obligations $ 109,910
=========
Subsequent to December 31, 2000, the Company acquired additional equipment
under operating lease agreements which expire in 2004. Future minimum
payments under these leases are as follows:
YEAR ENDED
DECEMBER 31,
2001 $ 156,177
2002 217,971
2003 217,971
2004 61,794
---------
$ 653,913
=========
6. COMMON STOCK
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 60,000,000 shares of stock consisting of 30,000,000 shares of
Class A Voting Common Stock with a par value of $0.001 per share,
10,000,000 shares of Class B Non-Voting Common Stock with a par value of
$0.001 per share, and 20,000,000 shares of Preferred Stock with a par value
of $0.001 per share. As of December 31, 2000, there were 20,246,000 shares
of Class A Voting Common Stock issued and outstanding and no shares of
Class B Non-Voting Common Stock or Preferred Stock issued or outstanding.
A portion of the shares previously sold are subject to a right of
repurchase by the Company (at the price paid by employees) subject to
vesting, which is generally over a four year period from the
F-12
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
earlier of grant date or employee hire date, as applicable, until vesting
is complete. At December 31, 2000, there were 24,000 shares subject to
repurchase.
Effective March 31, 2000, the members of Intelligent Communications LLC,
(the "LLC") exchanged their membership interests for shares of Class A
Common Stock in Nexbell Communications, Inc. (a Delaware C-Corporation).
The members received stock in Nexbell Communications, Inc. in proportion to
their ownership interests in the LLC.
7. STOCK OPTIONS
In May 1999, the Company adopted the 1999 Stock Option Plan (the "1999
Plan"). The 1999 Plan provides for the granting of stock options to
employees of the Company. Options granted under the 1999 Plan are
nonqualified stock options (NSO).
Options under the 1999 Plan may be granted for periods of up to ten years
and at prices no less than 85% of the estimated fair value of the shares on
the date of grant as determined by the Board of Directors, provided,
however, that a) the exercise price of a NSO shall not be less than 100%
and 85% of the estimated fair value of the shares on the date of grant,
respectively, and b) the exercise price of a NSO granted to a 10%
stockholder shall not be less than 110% of the estimated fair value of the
shares on the date of grant. Options typically vest over three years.
Unexercised options expire one year from the date of vesting.
The following table sets forth the stock option activity:
YEAR ENDED DECEMBER 31, 2000
WEIGHTED
AVERAGE
SHARES EXERCISE
PRICE
Options outstanding at January 1, 2000 2,130,000 $ 0.05
Options granted 44,000 1.00
Options exercised (144,000) 0.21
Options canceled (1,000) 1.00
---------
Outstanding at December 31, 2000 2,029,000 $ .06
=========
Options exercisable at December 31, 2000 1,209,999
=========
F-13
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
The following table summarizes information on stock options outstanding:
OPTIONS EXERCISABLE AT
OPTIONS OUTSTANDING AT DECEMBER 31, 2000 DECEMBER 31, 2000
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
$ 0.05 2,010,000 3 years $ .05 1,209,999 $ 0.05
1.00 19,000 1.5 years 1.00 -- 1.00
--------- ---------
$0.05 to 1.00 2,029,000 2.9 years $ .06 1,209,999 $ 0.06
========= =========
As permitted under APB No. 25, no compensation cost was recognized in the
statement of operations for the Company's outstanding stock options. Had
compensation cost for the Company's stock-based compensation plan been
recognized ratably over the options' vesting periods, in accordance with
SFAS 123, the Company's pro forma net loss would have been $6,195,661 for
the year ended December 31, 2000.
The weighted-average fair value of options granted during the year ended
December 31, 2000 was $0.12. Option grant date fair values were determined
using a Black-Scholes option pricing model. The following table summarizes
the underlying assumptions used.
Risk-free interest rate 6.27%
Expected stock price volatility 0
Expected dividend yield 0
Expected option term 2 years
Due to a pending merger agreement with WebToTel, Inc., dated August 7,
2000, all employees were given the opportunity to exercise their options
immediately. Several Company employees exercised their options, acquiring
144,000 shares for $30,000. The Company allowed the employees to exercise
their options utilizing non-recourse notes receivable which are due on
demand, with no interest.
In accordance with APB No. 25, the Company recognized a compensation charge
of $114,000 in the statement of operations for the incremental fair value
of the common stock at December 31, 2000 over the purchase price for those
options exercised with notes receivable. This compensation charge will
continue to be remeasured until such time as the notes receivable are paid
or forgiven.
F-14
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
8. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) defined contribution plan covering all
employees. Contributions made by the Company are determined annually by the
Board of Directors. Employer contributions under this plan amounted to
$76,123 for the year ended December 31, 2000.
9. SUBSEQUENT EVENTS
On February 22, 2001, the Company was acquired by WebToTel, a subsidiary of
Counsel.
On April 17, 2001, WebToTel and the Company were acquired by I-Link
Corporation, a company controlled by Counsel.
F-15
I-LINK INCORPORATED
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
statements have been prepared to give effect to the merger with WebToTel,
Inc. ("WebToTel") and it's subsidiary Nexbell Communications Inc.
("Nexbell"). Effective March 2001, I-Link Incorporated ("I-Link") became a
majority owned subsidiary of Counsel Corporation ("Counsel"). The historic
financial statements of I-Link do not reflect the transaction between Counsel
and I-Link. As a result of the transaction, I-Link, WebToTel and Nexbell were
under common control of Counsel at the time of I-Link's acquisition of
WebToTel. The merger of I-Link and WebToTel has been accounted for using
Counsel's purchase price allocated to the assets and liabilities pursuant to
APB 16. WebToTel acquired Nexbell on February 22, 2001 and accounted for that
acquisition using the purchase method of accounting, the effects of which are
reflected in the accompanying pro forma financial statements.
The unaudited pro forma combined condensed balance sheet as of December 31,
2000 gives effect to the merger as if it had occurred on December 31, 2000, and
combines the historical consolidated balance sheet of I-Link and the historical
consolidated balance sheets of WebToTel and Nexbell as of such date.
The unaudited pro forma combined condensed statement of operations combines
the historical consolidated statements of operations of I-Link, WebToTel and
Nexbell as if the merger had occurred as of January 1, 2000. The unaudited pro
forma combined condensed statement of operations for the year ended December 31,
2000 combines the historical consolidated statement of operations of I-Link with
the historical consolidated statements of operations of WebToTel and Nexbell for
the year ended December 31, 2000.
Unaudited pro forma combined condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the
financial position or results of operations that would have actually been
reported had the merger occurred at the beginning of the period presented, nor
is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma combined condensed financial statements
are based upon the respective historical consolidated financial statements of
I-Link, WebToTel and Nexbell and notes thereto. These unaudited pro forma
combined condensed financial statements do not incorporate, nor do they assume,
any benefits from cost savings or synergies of operations of the combined
company.
F-16
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
as of December 31, 2000
I-LINK NEXBELL WEBTOTEL ADJUSTMENTS PRO FORMA
------------- ----------- ----------- ------------ -------------
ASSETS
Current assets:
Cash $ 2,155,628 $ 366,855 -- -- $ 2,522,483
Accounts receivable, net 3,357,856 330,093 -- -- 3,687,949
Other current assets 385,891 78,063 $ 196,506 -- 660,460
------------- ----------- ----------- ------------ -------------
Total current assets 5,899,375 775,011 196,506 -- 6,870,892
------------- ----------- ----------- ------------ -------------
Furniture, fixtures, equipment and
software, net 10,983,273 667,592 -- -- 11,650,865
Other assets:
Intangibles, net 3,939,226 -- -- $ 9,002,864 (C) 12,942,090
Deferred costs -- 36,656 748,838 -- 785,494
Certificates of deposit - restricted 222,636 -- -- -- 222,636
Other 612,982 47,331 40,544 (40,544)(C) 660,313
------------- ----------- ----------- ------------ -------------
$ 21,657,492 $ 1,526,590 $ 985,888 $ 8,962,320 $ 33,132,290
============= =========== =========== ============ =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 5,370,490 $ 450,047 -- -- $ 5,820,537
Accrued liabilities 3,327,900 250,982 -- $ 175,000 (A) 3,753,882
Unearned revenue 14,885,592 379,149 -- -- 15,264,741
Accrued interest on note payable to
related party 2,376,498 -- $ 23,718 (23,718)(B) 2,376,498
Current portion lease incentive -- 255,288 -- -- 255,288
Note payable to related party 7,768,000 -- 2,073,373 (2,073,373)(B) 7,768,000
Current portion of long-term debt 785,971 -- -- -- 785,971
Current portion of obligations under
capital leases 1,445,690 185,140 -- -- 1,630,830
------------- ----------- ----------- ------------ -------------
Total current liabilities 35,960,141 1,520,606 2,097,091 (1,922,091) 37,655,747
Notes payable 796,662 6,119,504 -- (6,119,504)(B) 796,662
Deposits -- 210,807 -- -- 210,807
Obligations under capital lease 338,263 109,910 -- -- 448,173
Unearned revenue 1,666,667 -- -- -- 1,666,667
------------- ----------- ----------- ------------ -------------
Total liabilities 38,761,733 7,960,827 2,097,091 (8,041,595) 40,778,056
------------- ----------- ----------- ------------ -------------
Redeemable preferred stock - Series M 11,734,820 -- -- -- 11,734,820
------------- ----------- ----------- ------------ -------------
Stockholders deficit:
Preferred stock 244,350 -- -- -- 244,350
Common stock 196,957 20,246 50,000 51,934 (B) 319,137
Additional paid-in capital 106,622,114 1,174,854 -- 9,527,644 (B,C) 117,324,612
Note receivables from stockholders -- (30,000) -- -- (30,000)
Accumulated deficit (135,902,482) (7,599,337) (1,161,203) 7,424,337 (A,C) (137,238,685)
------------- ----------- ----------- ------------ -------------
Total stockholders' deficit (28,839,061) (6,434,237) (1,111,203) 17,003,915 (19,380,586)
------------- ----------- ----------- ------------ -------------
$ 21,657,492 $ 1,526,590 $ 985,888 $ 8,962,320 $ 33,132,290
============= =========== =========== ============ =============
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements
F-17
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
for the year ended December 31, 2000
I-LINK NEXBELL WEBTOTEL ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ------------ ------------
Revenues:
Telecommunication services $ 18,300,548 $ 1,455,456 -- -- $ 19,756,004
Marketing services 463,740 -- -- -- 463,740
Technology licensing and development 8,972,828 -- -- -- 8,972,828
Other 2,667,039 -- -- -- 2,667,039
------------ ----------- ----------- ------------ ------------
30,404,155 1,455,456 -- -- 31,859,611
Operating costs and expenses:
Telecommunication network expense 24,958,320 4,048,943 -- -- 29,007,263
Marketing services 456,354 -- -- -- 456,354
Selling, general and administrative 18,353,731 2,788,040 -- -- 21,141,771
Unsuccessful acquisition costs -- -- $ 1,137,485 -- 1,137,485
Provision for doubtful accounts 113,168 164,921 -- -- 278,089
Depreciation and amortization 6,399,318 265,257 -- $ 1,800,573 (D) 8,465,148
Research and development 4,220,333 -- -- -- 4,220,333
------------ ----------- ----------- ------------ ------------
Total operating costs and expenses 54,501,224 7,267,161 1,137,485 1,800,573 64,706,443
Operating loss (24,097,069) (5,811,705) (1,137,485) (1,800,573) (32,846,832)
------------ ----------- ----------- ------------ ------------
Other income (expense):
Interest expense (1,502,676) (256,878) (23,718) -- (1,783,272)
Interest and other income 487,132 21,457 -- -- 508,589
Loss on sale of assets -- (139,606) -- -- (139,606)
Settlement expense (639,565) -- -- -- (639,565)
------------ ----------- ----------- ------------ ------------
Total other income (expense) (1,655,109) (375,027) (23,718) -- (2,053,854)
------------ ----------- ----------- ------------ ------------
Net loss ($25,752,178) ($6,186,732) ($1,161,203) ($ 1,800,573) ($34,900,686)
============ =========== =========== ============ ============
Calculation of net loss per common share:
Net loss ($25,752,178) ($6,186,732) ($1,161,203) ($ 1,800,573) ($34,900,686)
Cumulative preferred stock dividends
not paid in current year (1,646,818) -- -- -- (1,646,818)
------------ ----------- ----------- ------------ ------------
Loss applicable to common stock ($27,398,996) ($6,186,732) ($1,161,203) ($ 1,800,573) ($36,547,504)
============ =========== =========== ============ ============
Basic and diluted weighted average
shares outstanding 26,669,058 -- -- 17,454,333 (E) 44,123,391
============ =========== =========== ============ ============
Net loss per common share - basic
and diluted $ (1.03) $ (0.83)
============ ============
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements
F-18
I-LINK INCORPORATED..
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION:
On April 17, 2001, I-Link Incorporated ("I-Link") completed the merger with
WebToTel, Inc ("WebToTel") and its subsidiary Nexbell Communications Inc.
("Nexbell"). WebToTel was an entity established to acquire telecommunication
companies. Nexbell is a wholesale network telecommunications provider. I-Link
acquired WebToTel and its subsidiary Nexbell for consideration consisting of
17,454,333 shares of I-Link's common stock and acquisition costs of
approximately $175,000. Each share of WebToTel stock was exchanged for .1313
shares of I-Link common stock. This transaction was recorded using book value
purchase accounting (similar to the pooling-of-interests method of accounting)
as all three entities were under common control of Counsel Communications LLC (a
wholly owned subsidiary of Counsel Corporation) at the time of the merger. The
merger was a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended.
NOTE 2--PRO FORMA ADJUSTMENTS:
The following pro forma adjustments were applied to the historical
consolidated financial statements of I-Link, WebToTel and Nexbell to arrive at
the unaudited pro forma combined condensed financial information.
(A) Adjustment to record the accrual of the estimated costs resulting from
the merger of I-Link and Nexbell. Estimated transaction and merger costs include
the following:
-- Financial advisory fees. $ 75,000
-- Legal and accounting professional fees. 100,000
--------
$175,000
========
These estimated costs are not reflected in the pro forma combined condensed
statement of operations because they are non-recurring in nature.
(B) Adjustment related to the issuance of 17,454,333 shares of I-Link
common stock in exchange for all of the outstanding stock of WebToTel. Includes
adjustment for note payable from WebToTel ($2,073,373) to Counsel and related
accrued interest ($23,718) which were converted into capital of WebToTel in
April 2001.
F-19
I-LINK INCORPORATED
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
NOTE 2--PRO FORMA ADJUSTMENTS, CONTINUED
(C) Adjustment to reflect purchase accounting adjustments including the
addition of goodwill from the acquisition of Nexbell by WebToTel in February
2001, and the elimination of Nexbell's equity accounts as of December 31, 2000.
This transaction was recorded using the purchase method of accounting.
The allocation of the aggregate purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed in connection
with this acquisition was based on the estimated fair values as determined by
Counsel's management. The purchase price allocation resulted in $9 million of
goodwill, which will be amortized over five years.
(D) Pro forma adjustment to record amortization of the intangible asset
recorded in entry C above.
(E) Adjustment to the weighted average shares outstanding to reflect
I-Link shares issued (17,454,333) upon acquisition of WebToTel and Nexbell.
NOTE 3--PRO FORMA NET LOSS PER SHARE:
Basic and diluted weighted average shares outstanding were calculated based
upon the historical basic and diluted weighted average shares outstanding of
I-Link, increased by the shares I-Link issued upon acquisition of WebToTel and
Nexbell which assumes the shares had been outstanding during all of 2000.
Because the companies are in a net loss position on a pro forma combined
condensed basis, inclusion of potential common stock in the computation of pro
forma net loss per share is anti-dilutive; therefore, potential common stock is
excluded from the per share amounts.
NOTE 4--AMENDED FILING:
This Form 8K/A#2 amends I-Link's Form 8K/A#1. Specifically, the
Unaudited Pro Forma Combined Condensed Statement of Operations for the year
ended December 31, 2000 originally reported an adjustment to depreciation and
amortization of $750,239 (see Note 2(D) above). This amendment revises that
amount to $1,800,573. Accordingly the pro forma loss and loss per share have
been restated as follows:
as originally
reported as restated
------------- -----------
Net Loss $ 33,850,352 $ 34,900,113
Loss per common share
- basic and diluted $ (0.80) $ (0.83)
F-20